Some UK property stocks may be approaching oversold levels, JP Morgan says

Inactivity bred by the uncertainty after Brexit would create material headwinds for UK property stocks, but even after factoring-in 30% declines in capital values over the coming three years shares in Land Securities, Derwent London and Hammerson might be approaching oversold levels, JP Morgan said.

"The path from here remains unclear, and we feel wholesale changes to estimates (at this stage) may be premature," analysts at JP Morgan said in a research note published at 00:15 BST on 28 June.

Aside from the 30% decline in capital values, the analysts also factored in zero rental growth, yield expansion and deferred development pipelines.

Despite those bearish assumptions, the broker's economic-value-added for those stocks suggested marginal 'upside' for Land Securities (4%), Derwent London (4%) and Hammerson (2%).

Rental growth in the West End would flat-line, the broker added, as job growth fell to 0.0% per year, instead of the 0.8% yearly expansion previously forecast, while GDP growth would slow from 2.4% per year to 1.1%.

The rate of rental growth expectations in the West End would therefore be a much more modest 0.5% per year between 2016 and 2018, down from the 9.0% pace they had estimated in June.

In the City, the same excercise saw rental growth forecasts drop from 4.5% to -4.5%.

That same bearish view suggested capital values in the West End could fall by up to 30%, with yield expansion of 158 basis points, the broker said.